ERP

Impact of ERP Implementation in Organizational Reengineering

-- Garima Tyagi

Enterprise Resource Planning (ERP) system is a computer software system that helps in coordinating and managing all the information, functions and resources of the organization. It helps in improving the entire business process by integrating all the activities of the organization, which are either operational or managerial. At present, ERP software is widely being used in the material requirement planning, functional analysis, budgeting, management accounting, etc. It is the backbone to the enterprise information system.

In an organization, the collection of all processes for developing or delivering services or products to provide value to the customer is defined as the business process. When the business processes are revised to improve the entire performance by redesigning the same, the process is known as reengineering. Reengineering is essential for the following reasons:

• As we all know, customers constitute a significant part of the organization and they should be treated assets. Every organization comprises two types of customers—internal customers and the external customers. The internal customers are the employees of the organization and they need to initiate significant changes related to culture and organizational process to offer value-added services to their customers.

• To win in the competition, organizations have to compete at both global and regional levels and for this, they must improve their business processes. If observed, one will find that the working style of the organizations has changed drastically with the application of IT in the recent years. The new technologies have helped both the customers and retailers alike. It has become easy to carry out transactions using the latest technologies. To compete in the current globalized market, organizations have to continuously make structural changes.

Business Process Reengineering

Hammer and Champy (1993) defined reengineering process as "Whenever there is any radical redesign of the business processes by rethinking the entire process and it leads to the spectacular improvement in the critical measure of performance, i.e., the improvement in cost, service, quality and speed."

Thomas Davenport (1993), another well-known theorist, defined Business Process Reengineering (BPR) as the innovation process, "thinking deeply about the new work strategies, including them and implementing the change in all the complex technologies including all the dimensions of organization is called process innovation."

Another definition of BPR was given by Johansson et al. (1993), who stated, "Unlike Total Quality Management (TQM), i.e., a continuous improvement of the processes leads to radical changes by modifying on same time totally retooling the business processes by using just in time and TQM as process enabler but expanding the process vision."

Characteristics of BPR

• BPR combines different tasks into one

• The empowerment of the employees is an important aspect of the BPR that includes their training.

• BPR says that the processes not returning any value to the organization should be removed.

• It is used to improve the quality, productivity and the overall performance by maximizing the profit and minimizing the cost.

• BPR is mainly related to the introduction of new technology for performance improvement. Sometimes, it is the adaptation of new technologies, rather than improving the existing ones, in the process.

Role of IT in BPR

IT plays a very important role in the BPR of any organization. In the beginning, IT was used only to help the companies in automating their business processes. But now, IT is helping companies in different ways like it is used to implement new processes more effectively (Davenport and Shant, 1990). When the structure of the organization is decentralized, then the value of IT increases. Using survey data, it was found that if the organizations invest more in redesigning the business process and increasing their IT resources, the value added services may have better results due to increased productivity and better performance.

Introduction to ERP

The evolution of Enterprise Resource Planning (ERP) began in the 1960s and 1970s by automating the simple financial and other processes with that of Material Requirement Planning (MRP) i.e., MRP at IBM. It was a set of modules for analyzing changing demands for a manufacturing product.

So, the next version, known as MRP II, was developed to integrate the business activities and it provided the hierarchical method to find the solutions. These systems were defined as the complete planning systems for the manufacturing companies. But, apart from this, organizations also required other functions related to different activities of the organization. This led to the evolution of the ERP for performing different functions and also for integrating the processes to improve the information sharing required to operate the enterprise more effectively and efficiently. ERP provides a base for enterprise-wide information system. The main part of ERP is the central database and a common platform to standardize the business processes. ERP system includes modules that are not only concerned with the traditional accounting information system but also with some other functions like stock control, MRP, electronic data interchange and e-commerce.

ERP systems are part of IT and they are available in a wide range of software products. They support day-to-day activities of the organization, including the normal transaction processing, management information system and also other decision making processes. Organization are going for ERP for integrating all the activities and aligning all the processes to provide value-added services to their customers by automating different operations like supply chain management, inventory control, manufacturing and production, customer relationship management and also the financial and HRM processes like budgeting and employee management of the organization. The most commonly used ERP software is SAP AG and ORACLE 11i. The requirement of ERP in any organization is very clear as in this case, the entire system becomes integrated so there will be a better control on all the activities of the organization due to the presence of high degree of interoperability.

ERP Software Vendors

SAP AG: Systems, Applications and Products (SAP) was developed in Germany in 1972. After a lot of research, the first ERP software R/2 was launched. It was a system designed for mainframe-based database. After the success of R/2, R/3 was launched in 1992. Like the earlier software, this was also a success in terms of enhancing the overall activities of the organization. In 1999, the SAP AG was introduced as an ERP software and this changed the entire process of organizations with the introduction of different products related to different functional areas of the business. Some of the products of SAP are:

• APO - Advanced Planner and Optimizer.

• BIW - Business Information Warehouse.

• CRM - Customer Relationship Management.

• SRM - Supplier Relationship Management.

• PLM - Product Lifecycle Management.

• HRMS - Human Resources Management System.

SAP also introduced the mySAP.com, a supply chain solution that integrates different functions, like collaboration, planning, execution and coordination of the entire supply chain network.

• Oracle: Oracle is the second largest software company in the market and is the leader in ERP products. The main product of Oracle has been named as Oracle Applications 11i. Apart from this, other products of the company are equally playing a major role by helping in increasing the efficiency of business processes. The following are some of its products.

- People Soft: Earlier, it was used for Human Resources Management (HRM). But now, it provides solutions for material management, finance supply chain management, manufacturing, along with HRM.

- J D Edwards: It provides solutions for different business processes, like finance, manufacturing, supply chain management, including the planning and scheduling, distribution and human resources.

Impact of ERP Implementation

ERP system has a significant impact on planning and controlling in an organization. It has brought about many changes in the management system. The entire business organization can be divided into different functional units. It was observed that SAP implementation resulted in the centralization of the accounting functions and decentralization of control within the organization. It consists of different modules and has an open architecture. It can link the business processes between companies, i.e., the links can be established between the supplier and the customers in a more easily. The modules help in the different processes, like sales and distribution, material management, product planning, financial accounting, quality management, plant maintenance and project management. The impact of the implementation of SAP packages was studied and it was found that several areas had to be improved. The ERP benefits can be grouped into different categories:

• Improves the flow of information in different functional units of the organization.

• The control system becomes decentralized.

• Some of the existing inefficient business practices can be replaced by `best practices'.

• Information can be offered at a faster pace.

• When ERP is implemented, there is a change in the entire structure and the controlling system of the organization.⁵

• It increases the flexibility, integration of information and the quality of financial reports.

• It focuses on the low formalization, decentralized control and high product quality.

• It focuses on increase complexity of workflow and increased specialization.

Like every other system, implementation of ERP also has some disadvantages.

• The initial investment is huge because initially it includes consulting, process redesign, integration of sub units, testing and finally the training.

• Requirement of trained manpower.

• Lesser flexibility.

• Other integration related problems.

Conclusion

Over the past few years, a large number of organizations have been influenced by IT and also by new technologies like ERP. They could integrate different activities of the organization using computerized transaction processing and the telecommunication with the help of new means of telecommunication. To compete in the current globalize market, organizations are required to change their structural designs and the control system from manual to technology-based new ones, called as ERP systems. ERP plays a vital role in the reengineering process of an organization and the flexibility of the organization can be increased with the implementation of ERP. Complexity in the workflow can also be increased with its implementation. ERP systems provide more detailed, accurate information related to budgeting, accounting, forecasting and other processes and the entire reengineering process that requires resources, time dedication and effort can be done by adopting enablers like ERP. But it is suggested that the ERP implementation requires the reorganization of the business process with the change in the management culture. It also requires the support of the top management to complete the process of reengineering because the actual goal of BPR is to modify the existing rules to obtain the increased efficiency with better controls. This can be accomplished by the involvement of the strategic level management in the implementation of ERP for improving the processes.

About the Author

Garima Tyagi is a Faculty Member at INC, Kota. The author can be reached at garima.inc@gmail.com.